Honda/Nissan merger realistic, Mitsubishi to join in

Just a week ago, we informed you of ardent rumors of a merger between Honda and Nissan, with Mitsubishi possibly joining in. Meanwhile, the news has gained momentum, and yesterday, the CEOs of the three companies announced the new framework during a press conference in Tokyo.

So, Honda and Nissan plan to merge under a holding company with the top executives chosen by Honda in a historical reshuffling of Japan’s auto industry meant to keep the country’s second and third-largest players competitive amid a global onslaught of new competitors and technologies.

Mitsubishi Motors, partly owned by Nissan, will decide by the end of January whether to join the new partnership. At the press conference, Honda CEO Toshihiro Mibe stood in the center, flanked by his counterparts Makato Ushida (Nissan) and Takao Kato (Mitsubishi). The companies said they will now negotiate details.

A leading company

“We have the potential to be a world-class, leading company in new mobility,” Mibe declared. “By 2030, we need the artillery to compete on the battlefield. So, we are starting today.”

Honda, Japan’s number 2 automaker, and Nissan aim to finalize an agreement by next June and establish the holding company by August 2026. They plan to take the new entity public by then, pending investor approval at extraordinary shareholder meetings scheduled for around April 2026. Honda Motor Co. and Nissan Motor Co. will be delisted from the Tokyo Stock Exchange and become subsidiaries of the new holding company.

Honda to take the lead

Honda is expected to nominate most directors and the new company’s president. The final share transfer ratio will be decided later based on share prices, among other factors. The name and headquarters of the new holding company are still undecided.

Mibe pitched the agreement as a way to sharpen the companies’ competitive edge in areas ranging from production and vehicle R&D to sales financing, electrification, and software development. He cautioned that the combined operations won’t be a quick fix. The first outcomes will not manifest before the end of the decade, with the big payoffs coming after 2030.

The companies predicted that a combined Honda and Nissan would generate annual revenue exceeding ¥30 trillion (€183 billion) and operating profit exceeding ¥3 trillion (€18.3 billion). Mibe said the new combination was not a bailout of Nissan. Nissan and Honda will be expected to stabilize their businesses before joining hands.

Embattled Nissan, fighting a long-term sales decline and shrinking profits, launched a revival plan in November that diminishes its global capacity and cuts 9,000 jobs worldwide. Mibe added that any finalized deal would hinge on Nissan first getting its house in order.

In the meantime, Honda is initiating large buybacks of its stock to bolster its share price, Mibe pointed out. Honda wants to buy back up to 20% of its outstanding. Honda is acting now before regulatory restrictions on buybacks occur during merger talks. “It’s not going to stay like it is today forever,” Mibe noticed.

He added that the long-term goal is not downsizing and rationalizing operations but growth and a more significant scale. As an example of a potential impact on the US market, Mibe dangled the possibility of delivering a hybrid pickup truck, leveraging Honda’s strength in gasoline-electric powertrains and Nissan’s experience in body-on-frame trucks. “We aren’t thinking about just carving out and leaving only the good parts; we want to think about options that lead us to a bigger scale.”

Larger scale, more considerable savings

Mibe and his Nissan counterpart Makoto Uchida said Honda will take the lead in setting up the holding company because its market capital is more significant than Nissan’s. Before news of the talks broke this month, Nissan’s share price diminished by 35% this year as the company struggled with financial problems, including a net loss in the latest quarter.

“We will be able to address all the challenges ahead and deliver significant new value that we have never seen before,” Uchida said. “We will be among the top class. Without the courage to transform, we will be unable to continue. We can win if we enter discussions quickly, even against the many emerging players.”

The December 23 agreement builds upon a looser technology and purchasing partnership the companies began exploring in March. Honda and Nissan then communicated that they would explore teaming up on electric vehicles, automotive software, batteries, procurement, etc. Mitsubishi joined the talks in August.

Combining would give the automakers a larger scale to drive down costs and share the R&D investments for new technologies. However, it would also create a complicated overlap in Japanese production facilities, key markets, management, and product segments.

Moreover, the merger will influence the agreements with existing Nissan partners Renault and Mitsubishi. Renault acknowledged the merger plans in a statement. “As the main shareholder of Nissan, Renault Group will consider all options based on the best interest of the Group and its stakeholders,” the statement said. “Renault Group continues to execute its strategy and roll-out projects that create value for the Group, including projects already launched within the Alliance.”

Even after the tie-up, Honda is expected to continue its project-based cooperation with General Motors on the side, and Nissan will be able to continue its own with Renault, Mibe said.

Last year, Nissan and Renault agreed to rebalance the Alliance. Each will have a 15 % stake in the other after Renault sells the balance of its 43% stake in a trust. As part of its restructuring and revival plans, Nissan is selling its controlling 34% stake in Mitsubishi Motors Corp., which it acquired in 2016.

What about Mitsubishi?

Mitsubishi CEO Takao Kato said his company would examine the holding company and possibly join. Mitsubishi brings strengths in Southeast Asia, such as plug-in hybrids and pickup truck platforms. “We see it as a positive move,” Kato said. “It is extremely difficult to afford all the investment and engineering resources alone.”

The biggest potential positive of merging would be huge scale. Though the companies have dialed down forecasts, Nissan plans to sell 3.4 million vehicles yearly, and Honda plans to sell 3.8 million vehicles. Mitsubishi would chip in another 895,000 deliveries, bringing total sales to more than 8 million. That’s number three in the world.

While scale and joint savings hold plenty of potential, execution will be the real test. Many questions arise: How can Nissan’s restructuring be supported with as little impact on the team as possible? How can the overlapping premium brands Acura and Infiniti be handled? How can the imploding businesses in China be jump-started?

Both companies have already begun developing their next-generation EV platforms and technologies for the latter 2020s. Integrating them could force more difficult choices. And how about the different corporate cultures?

“Merging Nissan and Honda creates scale, but accessing cost benefits from that scale is also a long-range process which can be costly in the short term,” S&P Global Associate Director Stephanie Brinley wrote in a reaction. “Finding meaningful and sustainable synergies in the product portfolio, product development, and manufacturing is where many mergers stumble and fail to live up to the potential.”

Former Nissan boss Carlos Ghosn, who fled Japanese justice in 2018, is doubtful about the merger. The French-Lebanese-Brasilian thinks Nissan is in panic mode. “On an industrial scale, duplicates exist everywhere, and there is no great complementarity. Also, Honda is far stronger than Nissan at the moment, but it’s not a thriving force in the industry, where the turn to electrification is led by Tesla and the Chinese manufacturers.”